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ECB: “Roots Of Bitcoin Can Be Found In The Austrian School Of Economics”
By Jon Matonis
Forbes
Saturday, November 3, 2012
http://www.forbes.com/sites/jonmatonis/2012/11/03/ecb-roots-of-bitcoin-can-be-found-in-the-austrian-school-of-economics/
The ECB (European Central Bank) has produced the first official
central bank study of the decentralized cryptographic money known as
bitcoin, Virtual Currency Schemes. Ignoring for a moment the ECB’s condescending and derogatory use of the virtual currency phrase and scheme phrase, the study produced at least one landmark achievement.
In claiming that “The theoretical roots of Bitcoin can be found in the Austrian school of economics,” the ECB forever linked Bitcoin to the proud economic heritage of Menger, Mises, and Hayek as well as to Austrian business cycle theory.
This recognition is also a direct testament to the monetary theory work
of Friedrich von Hayek who inspired many with his 1976 landmark
publication of Denationalisation of Money.
Bitcoin
fully embodies the spirit of denationalized money as it seeks no
authority for its continued existence and it recognizes no political
borders for its circulation. Indeed according to the report, proponents
see Bitcoin as “a good starting point to end the monopoly central banks
have in the issuance of money” and “inspired by the former gold
standard.”
Economists from the 19th and mid-20th centuries
can be forgiven for not anticipating an interconnected digital realm
like the Internet with its p2p distributed architecture, but modern
economists cannot be. From their own conclusions (on page 48) which
inaccurately lump Bitcoin together with Linden Dollars, here is what the
modern-day economists at the ECB are still not getting:
1. ECB concludes that if money creation remains at a low level, bitcoin does not pose a risk to price stability.
This is incorrect on two levels. One, the creation of new bitcoin is
capped at 21 million with eight current decimal places so it grows
through adoption and usage rather than monetary expansion. And two, as
with gold, silver, and other commodities having a monetary component,
price stability is a function of the market not central planners;
2. ECB
concludes that bitcoin cannot jeopardize financial stability due to its
low volume and limited connection with the real economy.
Conversely, bitcoin will tend to increase financial stability and
overall soundness. Bitcoin’s connection with the real economy is only a
concern for the regulated and taxed economy, whereas bitcoin
independently may thrive in the $10 trillion shadow or “original” economy. Besides, with its repeated market interventions, no one has done more to jeopardize financial stability than the ECB itself;
3. ECB concludes that bitcoin is currently not regulated and supervised by any public authority.
It would be more accurate to say that State-sponsored regulation is
largely irrelevant because of the inherent design properties of a
peer-to-peer distributed computing system. But happily, this is still a conclusion that I can agree with and recommend that it remains the case;
4. ECB
concludes that bitcoin could represent a challenge for public
authorities, given the legal uncertainty and potential for performing
illegal activities. While public authorities will certainly be
challenged by the introduction of a monetary unit that cannot be
manipulated for political purposes, bitcoin in some cases does have the
ability to provide tracking capability that far exceeds that of national
cash or money substitutes. What authorities will find most troubling
though, with bitcoin, is that money flows between individuals and
businesses will no longer be exploitable for purposes of unlimited
identity tracking and unconstitutional ‘fishing expeditions’;
5.
ECB concludes that bitcoin “could have a negative impact on the
reputation of central banks, assuming the use of such systems grows
considerably and in the event that an incident attracts press coverage,
since the public may perceive the incident as being caused, in part, by a
central bank not doing its job properly.” Pretentious as it may
seem, the ECB is stating here that central banks as protector of the
general public with respect to payments have a role to play because it
is their reputation that suffers in the event of a bitcoin-related
security incident. Firstly, that is an assumed responsibility — not a
delegated responsibility; and reputational impact aside, I would prefer
to rely on lex mercatoria;
6. ECB
concludes that bitcoin does indeed fall within central banks’
responsibility as a result of characteristics shared with payment
systems. Of course it does not. Central banks are a form of
centralized economic planning so their stated responsibilities are
suspect from the outset. Bitcoin represents an intangible math puzzle
whose existence is solely restricted to transfer rights on a cloud-based
public ledger. It more closely resembles an air guitar than a payment system for purposes of oversight.
Now,
in affirming the superior attributes of bitcoin in the role of
financial innovation, the ECB correctly identifies why the profligate
issuers of national fiat currencies will ultimately feel threatened by
such a decentralized nonpolitical unit. The report acknowledges the
following with respect to bitcoin: (a) “higher degree of anonymity
compared to other electronic payment instruments,” (b) “lower
transaction costs compared with traditional payment systems, and (c)
“more direct and faster clearing and settlement of transactions” from
the absence of intermediaries.
Overall, the fear of the monetary
overlords is palpable as the study concludes by basically promising
continued scrutiny and oversight. Also forecast for the plebeians is a
possible remedy to the global scope and unclear jurisdiction of the
regulatory challenge:
“One possible way to overcome
this situation and obtain some quantitative information on the magnitude
of the funds moved through these virtual currency schemes could be to
focus on the link between the virtual economy and the real economy, i.e.
the transfer of money from the banking environment to the virtual
environment. Virtual accounts need to be funded either via credit
transfer, payment card or PayPal and therefore a possibility would be to
request this information from credit institutions, card schemes and
PayPal.”
However, Michael Parsons,
a former executive with Emirates Bank (Dubai), Moscow Narodny Bank, and
KPMG Moscow, believes that those efforts will prove futile and he
explains, “Bitcoin is ‘regulated’ by its peers and mathematics. And
Bitcoin is not a currency like fiat money. It is a value transfer
system which is given value only by its users. So the ECB, FED, etc.
have no mandate to control a ‘virtual currency’ just because they call
it (bitcoin) that! It will just go underground. Bitcoin is like Light
and Air. Free to use and transfer. Owned and issued by the people and
NOT the State!”
It evokes an image of central bankers huddled
comfortably on the safe shoreline as they look out into the horizon and
see the dangerous, unstable virtual currencies approaching. The opposite
is actually the truth because it is the central bankers who are
floating precipitously out at sea. As James Turk famously said
about bitcoin’s analog cousin, “When standing in a boat and looking at
the shore, it is the boat (currencies) – and not the land (gold) – that
is bobbing up and down.”
AT THE INTERSECTION OF FREE BANKING, CRYPTOGRAPHY, AND DIGITAL CURRENCY
2012-11-08 08:03:10
Source: http://themonetaryfuture.blogspot.com/2012/11/ecb-roots-of-bitcoin-can-be-found-in.html
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